Law 360 New York (March 4, 2014)

by Kira Lerner

TD Bank NA was hit with a proposed class action Friday in Pennsylvania federal court alleging it has continued manipulating the order of debit card transactions to maximize overdraft fees, less than a year after it paid $62 million to settle multidistrict litigation over the same practice.

Lead plaintiffs Sheila and Emilio Padilla’s complaint alleges that TD Bank has continued to use a software scheme to illegally collect overdraft fees, and has assessed the fees even when customers have sufficient funds in their account to cover the payments.

“Many of the complained of practices continued as before, even after the class action settlement,” the complaint said.  “Shockingly, unlike nearly all other banks sued in the multidistrict litigation, … TD has continued these practices even after it settled claims of wrongdoing based on these very same practices.”

The new class action seeks to represent all TD Bank customers who opened a new account after the settlement class period ended on August 15, 2010, who were charged improper overdraft fees.  The class would also represent those customers that had an account prior to August 2010 but were not charged overdraft fees until after that time.

The complaint alleges that TD Bank manipulates and alters the order of customers’ transactions in order to charge them overdraft fees when they are not actually overdrawing from their accounts, in violation of federal law.

“Defendant employs sophisticated software to automate its overdraft systems,” the complaint said.  “These programs maximize the number of overdrafts, and thus the amount of overdraft fees charged per customer.”

In March 2013, a Florida federal judge approved a $62 million settlement to end the multidisctrict litigation brought against the bank in 2010 over the same allegations.

The named plaintiffs contended the bank had collected hundreds of millions of dollars in excessive overdraft fees by ordering debit card transactions from largest to smallest, so that larger transactions would empty customer accounts and smaller transactions would then trigger multiple overdraft charges.  They said the bank deliberately kept the transaction ordering system and other facets of its overdraft policy secret from consumers.

“The settlement achieved with TD Bank has recouped a substantial percentage (approximately 42 [percent]) of the most probable damages that settlement class members could have recovered if plaintiffs prevailed at every juncture throughout the balance of the litigation on appeal,” U.S. District Judge James Lawrence King said at the time.  “While the recovery achieved through the settlement does not achieve a 100 [percent] recovery, the $62,000,000 settlement fund is an outstanding result when considered in the context of TD Bank’s vigorous defenses to liability and damages.”

The case was part of multidistrict litigation accusing more than 30 different banks – including JPMorgan Chase Bank NA, Bank of America NA and PNC Bank NA – of manipulating debit card transactions to increase the number of overdraft fees imposed on account holders.

BofA, JPMorgan and PNC settled out of the MDL for $410 million, $110 million and $90 million, respectively.  RBS Citizens NA agreed in April 2012 to pay $137.5 million to resolve its alleged role in the scheme.

A representative for TD Bank was not immediately available for comment Tuesday.

Plaintiffs are represented by Richard M. Golomb, Ruben Honik and Kenneth J. Grunfeld of Golomb & Honik. PC.

Counsel information for defendants was not immediately available.

The case is Padilla et al. v. TD Bank NA, case number 2:14-cv-01276, in the U.S. District Court for the Eastern District of Pennsylvania.

–Additional reporting by David McAfee, Editing by Elizabeth Bowen.

Golomb & Honik, P.C., a Philadelphia based class action law firm, has announced that Discover Financial Services and J.P. Morgan Chase have agreed to pay $13.5 million on behalf of the States of  Hawaii, Mississippi and New Mexico as a result of the deceptive marketing of their credit card payment protection plans.  These settlements follow the resolution of five class actions totaling more than $130 million with some of the largest banks and credit card companies worldwide.  Golomb & Honik attorneys Richard Golomb, Ruben Honik, Kenneth Grunfeld and Kevin Fay served with co-counsel and each state’s attorney general in these cases.

Discover Financial Services will pay $6.6 million and J.P. Morgan Chase will pay $6.9 million divided amongst the states.

The Complaint filed by the Attorney General offices alleged the banks engaged in misleading and deceptive tactics in enrolling some customers into their payment protection without their knowledge and in enrolling others for a monthly fee knowing that the customer could not make a successful claim due to various and wide ranging exclusions.  The banks have denied the allegations.

“These settlements send the message to large banks and credit card companies that it is no longer business as usual in the way they take advantage of customers,” said Richard Golomb, managing shareholder of Golomb & Honik and counsel in all of the Attorney General and class action cases.  “These Attorneys General recognized that what these corporations were doing was wrong and fought to correct that wrong for their constituents.  It was a pleasure working with them.”

Other cases against major banks and credit card companies remain pending.

Los Angeles Times
By:  Jessica Guynn
September 26, 2013

A San Jose federal judge has ruled that Google must face a lawsuit that accuses the tech giant of illegally opening and reading the contents of email sent through its Gmail service in violation of federal wiretapping statutes.

“The court finds that it cannot conclude that any party – Gmail users or non-Gmail users – has consented to Google’s reading of email for the purposes of creating user profiles or providing targeted advertising,” U.S. District Judge Lucy Koh wrote in her ruling.

Google says it automatically scans emails to target advertising based on words that appear in Gmail messages but says that machines, not people, do the scanning.

“We’re disappointed in this decision and are considering our options,” Google said in an emailed statement.  Automated scanning lets us provide Gmail users with security and spam protection, as well as great features.”

Gmail users have filed seven lawsuits that have been consolidated into one.

Koh granted Google’s request to throw out claims filed under state law, but is allowing plaintiffs to refile those claims.

She refused to dismiss claims filed under federal law.  Google had argued that users agree to let Google read emails by accepting the service’s terms and privacy policy.

Google said in court papers that email users must expect “automated processing” of emails and that the lawsuit is seeking to “criminalize ordinary business practices that have been part of Google’s free Gmail service since it was introduced nearly a decade ago.”

Privacy watchdog Marc Rotenberg called the ruling “a major victory for Internet privacy.”

“Google will no longer be able to peer into everyone’s email,” said Rotenberg, executive director of the Electronic Privacy Information Center.

A federal appeals court earlier this month refused to dismiss a civil lawsuit accusing Google of violating federal wiretapping laws when its fleet of Street View cars inadvertently swept up emails, passwords and other highly sensitive personal information from unencrypted wireless networks.

The 9^th U.S. Circuit Court of Appeals ruled that Google could be held liable for damages for intercepting the personal data from unsuspecting households while photographing streets for its popular street-mapping service.

http://newsandinsight.thomsonreuters.com/Legal/News/2012/08

I’ve written a lot this year about a worrisome trend for class action lawyers: state attorneys general swooping into well-developed cases and settling them out from under the class lawyers who sank vast amounts of time and money into the litigation.  We saw it in the muni bond derivatives litigation, we’re seeing it in the e-books antitrust case, and I’d wager that the Libor subpoenas sent to banks by the New York and Connecticut AGs are a prelude to claims that could bump up against the ongoing Libor antitrust class action.

But here’s a twist on the paradigm: On Tuesday, U.S. District Judge Virginia Covington of Tampa, Florida, ruled that Capital One’s $250 million nationwide class action settlement does not bar subsequent parents patriae suits against the credit card company by state AGs – even though the class settlement specifically includes releases of those claims.  And to add to the frustration for Capital One and its lawyers at Morrison & Foerster, one of the private firms representing the AGs also represented plaintiffs in the class action.

According to Covington’s nine-page decision, Capital One cardholders first sued over the company’s “payment protection” fees in 2007 and reached a nationwide class action settlement in 2010.  The settlement agreement specifically released all “claims on [cardholders’] behalf (including the government in its capacity in parens patriae).” Yet in April and June of 2012, the AGs of Hawaii and Mississippi filed state-court parens patriae suits against Capital One, citing the same payment protection fees at issue in the class action.

Capital One asked Covington to enjoin the AGs’ suits, arguing that their claims had already been litigated and resolved in the case she oversaw.  The credit card company’s brief also asked the Florida judge to sanction the firm Golomb & Honik, which had been counsel to plaintiffs in the class action and subsequently signed on as counsel to the Hawaii and Mississippi AGs.  “Golomb’s conduct in asserting against Capital One claims released herein violates Golomb’s obligations under the settlement agreement approved by this court,” asserted Capital One’s MoFo lawyers, requesting an order that the plaintiffs’ firm pay Capital One’s legal fees.

Golomb & Honik replied that the class action settlement didn’t release the AGs’ claims because class members don’t’ have authority to do so.  Individual cardholders, the firm argued in a 24-page brief, can’t sign away the state’s rights, and Capital One knows it.  Otherwise, according to the brief, the credit card company would not have agreed to a $13.5 million settlement with the West Virginia AG in January 2012 to resolve the same payment protection fee claims that were raised in the class action.  “Why would Capital One agree to pay West Virginia and its citizens directly to settle claims regarding payment protection for an overlapping period of time and yet argue to Your Honor that all claims that an AG could bring have been released?” the Golomb brief said.  (The firm also asserted that it had done nothing to warrant sanctions, since it had not acted in any way to undermine the class settlement.)

In her ruling Tuesday, Covington sided with Golomb and the Mississippi AG, who also filed a brief in opposition to Capital One.  “The court’s order approving the settlement and closing this case did not bind the States of Mississippi and Hawaii,” she wrote.  “The (AGs) of Mississippi and Hawaii were not defined as class members and did not have an opportunity to participate in the litigation or opt out of the class.  It would be a violation of the Due Process clause to now enjoin such Attorney General via the requested injunction.”  And if Capital One wants to argue that the AGs’ claims are already resolved, she said, it should make that argument before the Hawaii and Mississippi judges hearing the AG cases, not to her.  (She also denied sanctions, without explanation.)

Richard Golomb told me Covington got the analysis exactly right.  He said there have been several other instances in which AGs have filed suits following class action settlements.  “Banks tried this same maneuver and failed each time,” he said.  I asked why the class settlement included language on the release of parens patriae claims if, in his view, that language is meaningless.  “I didn’t draft the release,” he said.

I left a message for Capital One counsel James McCabe of MoFo but didn’t immediately hear back.

(Reporting by Alison Frankel)

November 21, 2012

Legal Intelligencer

A federal judge has given final certification to a $23.5 million class settlement with HSBC in a case in which the plaintiffs alleged that the bank acted deceptively in administering its “debt cancellation” and “debt suspension” plans.

Over the objections from three states’ attorneys general, U.S. District Senior Judge Berle Schiller of the Eastern District of Pennsylvania approved the settlement, finding nearly all of the factors that courts are required to consider weighed in favor of the settlement.  The attorneys general for Hawaii, Mississippi and West Virginia aren’t members of the class, so they don’t’ have standing to object, Schiller said.

He explained in a footnote, “Because they are not class members, the AG’s may continue to bring claims belonging to their respective states, such as state criminal and regulatory actions.”  However, Schiller specified that members of this class settlement won’t be able to “double recover” on state actions.

Richard Golomb, of the Philadelphia class-action law firm of Golomb & Honik, represented the plaintiffs in the Eastern District case, Esslinger v. HSBC, and said of the objections from the attorneys general, “It’s the first time this has ever occurred.”  This settlement agreement applied to six cases, including ones in California, Washington, New Jersey and two in different districts of Illinois.

The states were reasonably taking a “belt and suspenders” approach.  Golomb said, explaining that they wanted to make sure that their state claims could survive.

Schiller’s reasoning in answering the objections was sound, both legally and equitably, Golomb said.

“The most common complaint was that the settlement amount was insufficient to compensate the individual objector for his or her estimated losses,” Schiller said.  “While the court is sympathetic to the objectors’ individual experiences, a settlement is, by its nature, a compromise.

“Considering the legal and factual obstacles that plaintiffs must surmount to prove their claims, the class members face a serious risk of recovering nothing without the settlement.  Likewise, the fact that the objectors represent a fraction of 1 percent of the overall class strongly favors settlement.”

Most members of the class will get between $15 and $60.  Anyone who was enrolled in HSBC’s “debt cancellation” or “debt suspension” programs, which would suspend or eliminate his or her credit car payments if he or she were to lose his or her job or become temporarily disabled for a monthly fee that was usually less than $200 between July 2, 2004, and February 22, 2012, can be a part of the class, according to the opinion.

Schiller found that all but one of the factors in each of the two tests he applied weighed toward approving the settlement.

He first discussed the nine Girsh factors, from the U.S. Court of Appeals for the third Circuit’s 1975 opinion in Girsh v. Jepson, and then, briefly, the Prudential factors, from the Third circuit’s 1998 opinion in In re Prudential Insurance.

“All of the Girsh and Prudential factors are neutral or weigh in favor of settlement, with the exception of whether defendants could withstand a greater judgment,” Schiller said.

“This court believes that the settlement represents a fair compromise between two parties seeking to end litigation whose outcome is murky and uncertain.”

Because HSBC is a multinational bank operating in more than 88 countries, it could probably survive a larger judgment, Schiller said.  However, that’s the only factor that he found against the approval of the settlement.

Notably, no formal discovery had yet taken place, although there had been cooperation between the parties with HSBC giving thousands of pages of documentation to the class’s counsel.

Schiller awarded 30 percent of the settlement amount as attorney fees, which nearly met the class counsel’s request of $7.7 million.  The percentage-of-recovery method that Schiller chose to determine the amount of attorney fees netted them $7.1 million.  He also awarded them costs of about $101,000.

Nearly all 10 of the Circuit’s factors for weighing the suitability of attorney fees weighed in favor of 30 percent of the settlement, Schiller found, with only the final factor, considering how innovative the terms of the agreement were, weighing in as neutral.

“The court finds that a 30 [percent] fee, a reduction from class counsel’s requested percentage of approximately 33 [percent], is a fair recovery considering the size of the fund and number of beneficiaries,” Schiller said, citing an opinion from his court earlier this month in In re Processed Egg Products Antitrust Litigation, which had approved a 30 percent attorney fee award on a $25 million settlement.

Andrew Stutzman of Stradley Ronon Stevens & Young in Philadelphia represented HSBC and couldn’t be reached for comment.

Pittsburgh Post-Gazette

PNC Bank customers who may overdraw their checking accounts are getting some good news.

Starting Dec. 1, Pittsburgh’s biggest bank will stop reordering checks and debit card transactions from highest amount to lowest, a practice long decried by consumer groups as a sneaky way to maximize overdraft fees.

Under the new policy, checks and debit transactions will be processed in the order they come in.

Earlier this year, PNC agreed to pay $90 million to settle a federal class-action lawsuit that accused big banks nationwide of improperly manipulating debit card purchases by re-sequencing them and clearing them from high to low.  That practice tends to drain an account more quickly and trigger the most overdraft fees, which now average about $35 a pop.

PNC spokesman Pat McMahon said the policy change was in the works before June’s settlement agreement.

The class-action suit, which is pending in U.S. District Court in Miami and involves some three dozen big banks (about one-third have settled so far), does not cover the way the banks process checks, only debit card transactions.  Nevertheless, PNC’s new policy will extend to checks.

With the switch, PNC joins First Commonwealth, Northwest Savings and ESB among the region’s top 10 retail banks in processing checks and debit card transactions in a manner favored by consumer groups.

Like PNC’s new policy, Northwest Savings and ESB clear both types of transactions in the order they are presented, while First Commonwealth processes checks in order and debit transactions from lowest amount to highest.

Dow Jones Newswires

By:  Andrew R. Johnson

A federal judge has denied Capital One Financial Corp.’s (COF) efforts to block state regulators’ lawsuits over payment-protection products marketed to credit-card customers.

Payment protection, also known as credit protection, has come under increased regulatory scrutiny amid claims that lenders have mischaracterized product features and enrolled customers in the services, which carry monthly fees, without their permission.  Capital One in July agreed to pay $210 million to settle similar allegations brought by the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency.

Separately, the McLean, VA.-based bank sought injunctions earlier this month against the attorneys general for Mississippi and Hawaii, who have filed lawsuits in recent months against Capital One over its sales practices for payment protection.

The request was made in a motion filed in U.S. District Court for the Middle District of Florida, which approved a settlement in 2010 over a federal class-action lawsuit in which customers claimed the bank enrolled them in payment protection without their permission.

“If allowed to proceed, the Attorneys General suits will ‘unsettle’ that which has been settled and will cast doubt on the finality” of the district court’s rulings in the previous case, attorneys for Capital One argued in their Aug. 3 motion.

But U.S. District Court Judge Virginia Hernandez Covington denied Capital One’s requests in an order filed Wednesday, calling the bank’s requests “inappropriate.”

The federal court’s approval of the 2010 settlement “did not bind the States of Mississippi and Hawaii” because they weren’t defined as class members in that case and “didn’t have an opportunity to participate in the litigation or opt out of the class.”  Preventing the states from bringing their suits would violate their due process, she stated.

Capital One spokeswoman Tatiana Stead didn’t have an immediate comment when contacted Friday.

Banks have marketed payment protection as a safety net cardholders can rely upon if they lose their jobs, encounter health problems or incur another hardship that prevents them from making their minimum monthly payment.  The service is supposed to suspend a borrower’s minimum monthly payments for a certain period of time if such an event occurs.

As part of the 2010 settlement, Capital One agreed to pay up to $250 million to credit-card customers who had payment protection, though they ultimately received about $60 million, based on the number of customers who opted in to the deal, Richard Golomb, an attorney with the law firm of Golomb & Honik, PC, said Friday.  The law firm helped represent the plaintiffs in the case and is serving as private counsel to Mississippi and Hawaii in their cases.

Capital One also sought sanctions against Golomb & Honik as part of its motion, arguing the firm’s representation of the two states “exhibit willful disobedience of the order” approving the 2010 settlement and “should be penalized.”

In her Wednesday order, the judge declined to issue sanctions against Golomb & Honik.

Hawaii AG David Louie filed a suit against Capital One in April, while Mississippi AG Jim Hood did so in June.  Both actions allege that bank has failed to accurately disclose the terms and conditions of payment-protection products to customers and determine if customers actually qualify for the service before enrolling them.

West Virginia AG Darrell McGraw in January said Capital One agreed to pay $13.5 million to settle a similar case.

Several large banks recently said they have halted sales of payment protection.

Bank of America Corp. (BAC) stopped selling credit protection to its credit-card customers earlier this month and plans to phase it out for existing cardholders enrolled in the service sometime next year, the bank said this week.  Bank of America agreed this summer to pay $20 million to settle a federal class-action lawsuit in which Golomb & Honik was also involved.

J.P. Morgan Chase & Co. (JPM) stopped offering the product to new customers last October.  Citigroup Inc. (C) has temporarily stopped selling the product over the phone while it reviews the product to ensure it is in line with recent guidance from the CFPB, a spokeswoman said this week.

Capital One said last month it had stopped offering payment protection and a credit monitoring product after it agreed to pay the CFPB and OCC $60 million in fines stemming from claims that its third-party sales agents mismarketed the products.  The bank also agreed to refund $150 million to customers.

Discover Financial Services (DFS) is facing a joint-enforcement action by the CFPB and Federal Deposit Insurance Corp. over its marketing of payment protection and other add-on products, the company has said in regulatory filings.

Bank of America Corp. (BAC) and other banks have stopped selling add-on products to credit-card customers that suspend borrowers’ minimum monthly payments in the event of a job loss or other hardship, as regulatory scrutiny of these offerings grows.

Debt-cancellation products, also known as payment or credit protection, have also sparked class-action lawsuits against the country’s largest credit –card issuers and let to a $210 million settlement last month between Capital One Financial Corp. (COF) and federal regulators.

Bank of America stopped offering products called Credit Protection Plus and Credit Protection Deluxe to new customers this month but is continuing to provide them to existing cardholders enrolled in the services, said Betty Riess, a spokeswoman for Bank of America.  The bank plans to end the service for those customers some time next year, she said.

Capital One has stopped offering payment-protection and credit-monitoring products, and Citigroup Inc. (C) has halted new telephone sales of payment protection products while it reviews its products.  J.P. Morgan Chase & Co. (JPM) ended sales of payment-protection products to new customers last year.

Bank of America’s decision to discontinue the products, which are provided by third-party vendors, is part of the bank’s “larger strategy to streamline our business,”  Ms. Riess said, citing Bank of America’s recent moves to exit certain businesses and sell assets deemed one-core.

Consumer advocates have argued the products provide little financial benefit to consumers, and customers have alleged in lawsuits that banks’ sales agents have enrolled them in the services without their consent and mischaracterized their costs and features.

Capital One’s settlement with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency could prompt other banks to eliminate or alter payment protection and other add-on products, such as identity-theft protection and credit monitoring, experts said.  Under the settlement, Capital One agreed to refund $150 million to customers and pay $60 million in fines.

The issues surrounding Capital One’s actions were “not unique to a single institution, and we do expect that there will be more activity,” Richard Cordray, director of the CFPB, said last month.  The agency issued a bulletin in July reminding banks of steps they should take to ensure payment protection and other add-on products are marketed appropriately to customers.

A CFPB spokeswoman declined to comment for this story.

J. P. Morgan Chas & Co. (JPM) stopped offering payment protection to new customers in October 2011, spokesman Paul Hartwick, wrote in an email Tuesday.

Existing J. P. Morgan customers who were enrolled in payment protection prior to that move would still continue to have it, Mr. Hartwick wrote.  “We do not have any intentions to end the program for those customers at this time,” he wrote.

Citi spokeswoman Emily Collins wrote in an email that the bank continually reviews its sales practices, controls and policies for marketing all products, including optional debt protection products.

Citi recently “paused tele-sales for our debt protection products and believe this action will allow us to fully complete voluntary review already under way, in line with new guidance recently issued by the CFPB,” Ms. Collins wrote.

While Bank of America does not disclose how much revenue such products generate, the Government Accountability Office said in a March 2011 report that consumers paid $2.4 billion in fees for payment-protection products in 2009.

The report looked at nine credit-car issuers, including Discover Financial Services (DFS), American Express Co. (AXP) and Bank of America, concluding that a “relatively small proportion of the fees consumers pay for debt-protection products is returned to them in tangible financial benefits.

Bank of America and other large banks have marketed payment protection as a safety net cardholders can rely on in the event they lose their jobs, encounter health problems or incur another hardship that prevents them from making their minimum monthly payment.  If such an event occurs, the service is supposed to suspend a borrower’s minimum monthly payments for a certain period of time.

“Credit Protection Plus is an optional Plan that can give you relief from your bank of America minimum monthly credit card payments when you need it most,” a Bank of America webpage states.  “It can help protect your Bank of America credit card account by canceling the minimum monthly payment for up to 18 months when times get tough or if you experience a life event such as getting married or purchasing a new home.”

Fees typically range from 85 cents to $1.35 per $100 of outstanding balance each month, the GAO said.  Bank of America charged 85 cents for every $100 of balance a customer carried, according to the company’s webpage.

The bank, which is the second-largest credit-card issuer based on outstanding loan balances, agreed to pay $20 million this summer to settle a class-action lawsuit alleging it mismarketed payment-protection products.  The settlement filed in U.S. District Court in San Francisco, received preliminary approval in July but awaits final approval.

The settlement does not require Bank of America to discontinue the products, which Ms. Riess and a court filing described as a business decision by the bank.  The settlement requires the bank to provide two months of credit protection to customers already enrolled in the services for free, though it has independently decided to do so for six months as it winds down the products, Ms. Riess said.  That should occur sometime next year, she added.

Capital One has no intention of selling payment protection or credit monitoring products “in the future because the economics of our credit-card business does not depend on revenues from add-on products,” Richard Fairbank, chairman and chief executive of the bank, said on an earnings conference call last month.

Mr. Fairbank said Capital One’s third-party vendors “did nto uniformly adhere to our sales scripts and the explicit instructions we provided to agents for how these products should be sold.”

Discover also expects the CFPB and Federal Deposit Insurance corp. to take a joint enforcement action against it regarding its marketing of payment protection and other add-on products.  The company said in a filing with the Securities and Exchange Commission in June that the cost of such an action could exceed what it has already accrued for litigation and regulatory matters by $110 million.

The Riverwoods, Ill.-based lender generated $101.2 million in revenue from payment protection, ID-theft protection and other add-on products in its fiscal second quarter.  The amount was down 3.7% from a year earlier, which the company attributed to changes it has made to sales practices based on regulator feedback.

Discover continues to offer the products to customers according to spokesman Jon Drummond, who declined to comment on the company’s sales strategy.

In addition to eliminating payment-protection products, Bank of America also stopped offering ID-theft protection services to credit-card customers late last year, Ms. Riess said.

Bank of America has received inquiries from regulatory authorities regarding ID-theft protection services, “including customers who may have paid for but did not receive” certain services from third-party vendors, the company said in a filing with the SEC earlier this month.

Discover, like Bank of America, settled class-action litigation alleging it enrolled customers in payment-protection services without their consent and misrepresented product features when pitching them to consumers.  J. P. Morgan, Capital One and HSBC Holdings PLC (HBC) have also reached settlements in similar litigation in the last two years.

Richard Golomb, a plaintiffs’ attorney involved in those cases, said he does not expect many banks will eliminate such products entirely.

“I think these banks and credit-card companies will try to do anything to generate revenue to the extend that they can, and … until it doesn’t make sense for them to do it anymore they’ll continue to do it, “ said Mr. Golomb, a managing shareholder of the law firm of Golomb & Honik, PC.

The New York Times

July 18, 2012

Capital One – which is known for its catchy television ads with Alec Baldwin – received a regulatory rebuke for misleading customers.

The nation’s consumer watchdog on Wednesday delivered its first enforcement action against the financial industry, fining Capital One for pressuring and misleading more than two million credit card customers.

Caption One, one of the nations biggest bans and credit card lenders, agreed to pay $210 million to resolve a pair of regulatory cases, the latest legal setback for the financial industry.

The Consumer Financial Protection Bureau, Wall Street’s newest regulator, accused Capital One of “deceptive marketing tactics.”  The credit card company – which is known for its catchy television ads, asking “what’s in your wallet” – received a regulatory rebuke for misleading card customers into buying unnecessary products like payment protection and credit monitoring, according to the consumer agency.

As part of the deal with the consumer bureau, Capital One must reimburse about $140 million to customers.  In a separate legal action, the Office of the Comptroller of the Currency, which regulates national banks, also sanctioned Capital One for bogus billing practices that spanned nearly a decade.

“We are putting companies on notice that these deceptive practices are against the law and will not be tolerated,” said Richard Cordray, the director of the consumer bureau.  Before Mr. Cordray became director of the bureau, he ran its enforcement division.

In a statement on Wednesday, Capital One said the wrongdoing occurred at outside call centers that “did not always adhere to company sales scripts.”  But the bank’s president of credit cards, Ryan M. Schneider, also acknowledged that the company was “accountable for the actions that vendors take on our behalf.”

“We apologize to those customers who were impacted and we are committed to making it right,” Mr Schneider said.

The case against Capital One could be the first of many actions against lenders that are aggressively ramping up payment-protection insurance programs, consumer advocates say.  The insurance, which promises card holders that the lender will suspend any late charges and minimum payments, has become particularly attractive in the depths of the recession.  While costs vary by card issuer, credit card companies typically charge up to 80 cents for every $100 of debt that is insured, lawyers for consumers said.

Banks are pushing into these products, according to industry analysts, in part to recoup billions in lost income resulting from new federal curbs on debit and credit-card fees.

The regulatory scrutiny comes on the heels of several Wall Street blowups and federal investigations that have stoked the anger of consumers and investors.  Last month, Barclays agreed to pay authorities $450 million to settle accusations that it had manipulated a benchmark interest rate, the first case to stem from a wide-ranging investigation into wrongdoing across the financial sector.  JPMorgan Chase is dealing with the fallout from a multibillion-dollar trading debacle.

The Captital One action was the consumer bureau’s first attempt to exercise its enforcement muscle.  Its case also comes on the second anniversary of the bureau’s creation, demonstrating the rapid growth of the nascent agency.

A centerpiece of the Dodd-Frank regulatory overhaul law passed in the wake of the financial crisis, the bureau is charged with protecting consumers from financial malfeasance.  The agency can write rules for an array of financial products, including credit cards and mortgages, as well as file enforcement actions against banks and the previously unregulated corners of the financial world like payday lenders

In the Capital One case, regulators say the bank allowed its call centers to deceptively sell certain credit card products to customers.  The products included a plan to allow customers to seek protection from bills if they lost their job – and debt forgiveness in the case of death or permanent disability.  The bank also offered credit monitoring, a feature that came with identity-theft protection and “credit education” for customers with spotty borrowing history.

In a 30-page order, the consumer bureau outlined how the bank’s call centers marketed and sold the products to ineligible unemployed consumers, who despite paying for the services, never received the full benefits.  At some call centers, a vendor working for the bank imposed the products without the consumer’s consent.  In other cases, according to the bureau, the bank employed “high pressure tactics,” including misleading customers into thinking the product was free, mandatory and would bolster credit scores.

Under the deal with regulators, Capital One must halt the deceptive practices and submit to an independent audit.  The deal also requires the bank to fully repay its customers who fell victim to the scheme.

In a related action on Wednesday, the Office of the Comptroller of the Currency required the bank to reimburse customers “harmed by unfair billing practices” that unfolded over a 10-year span, from 2002 to June of last year.  The O.C.C. imposed a $35 million fine against Capital One.

“Unfair and deceptive practices will not be tolerated,” Thomas J. Curry, the comptroller, said on Wednesday.

Between the restitution to customers and the fines to regulators, the bank will pay $210 million to settle the actions.

Capital One has run afoul of regulators before.  The bank, based in McLean, Va., was cited by the O.C.C. in 2010 for imposing “unfair” fees after customers sought to close their accounts.

The bank is also a longtime foe of consumer advocacy groups like the National Community Reinvestment Coalition.  The consumer groups have assailed the bank for its subprime and risky lending, while painting its credit card business as overly aggressive.  About a third of Capital One’s credit card portfolio carries the subprime label, defined as loans to borrowers with credit scores below 660, the company said last year.

The consumer bureau’s case against Capital One, which centers on credit card practices, comes as the bank has been ramping up its card business.  The bank closed a deal this year to buy HSBC’s American credit card business.

The National Community Reinvestment Coalition led the charge last year against Capital One’s bid to take over ING’s online banking unit in the United States, saying the deal would create the next too-big-too-fail banking behemoth.  The deal, the latest in a string of acquisitions, transformed Capital One into the fifth-largest bank by deposits.

While the Federal Reserve approved the deal, the consent came with some crucial conditions.  The Fed, citing consumer complaints and legal actions against the bank, ordered Capital One to bolster its internal controls of lending and debt-collection practices.

Top state law enforcement officials are also turning their attention to Capital One and other banks that pitch payment protection insurance.

Earlier this year, David M. Louie, Hawaii’s attorney general, sued seven major banks, including Capital One, for purportedly targeting elderly cardholders with payment protection plans.  The plans are ‘virtually worthless,” Mr. Louie said.

Credit card companies take advantage of consumers by signing them up for the protection without their permission, according to Mr. Louie.  The aggressive practice is particularly egregious, the attorney general’s office said, because the banks are pitching the products to their existing customers and have their sensitive card information.

“This practice is hardly limited to Capital One,” said Richard Golomb, a lawyer in Philadelphia who has brought class action lawsuits against lenders, including Bank of America, Citigroup, Discover Financial and JPMorgan Chase for credit protection insurance.